Los Angeles County once teetering on the brink of fiscal insolvency appears to have made a financial comeback after three years of staggering deficits and one-time fixes.

And perhaps one of the strongest signals of the county’s turn-around comes in the form of renewed confidence by Wall Street investors.

The county received a positive response last week when it issued $1.3 billion of Tax and Revenue Anticipation Notes a form of security used to raise money for the coming fiscal year’s short-term cash needs without having to buy a letter of credit.

Last year, the county was forced to spend $2 million to buy a letter of credit to get a favorable interest rate on the notes.

The notes also received the highest ratings from the nation’s major credit rating agencies. Last year, the county did not even seek a rating for fear that it would get low grades.

“We’ve shown Wall Street that Los Angeles County has made dramatic moves towards putting its fiscal house in order,” said David Janssen, the county’s chief administrative officer. “The response we got on these (notes) is proof of that.”

Los Angeles County Supervisor Zev Yaroslavsky said success can be attributed to a combination of things: the county’s willingness to buckle down and an upswing in the region’s economy.

“Two years ago they were saying Los Angeles County was in such bad shape that bankruptcy was the answer,” he said. “The economy helped us to some extent, but it was really because we got serious about what needed to be done. Anything less and we would have been digging our own grave.”

The county Board of Supervisiors has tentatively adopted a $12 billion 1997-98 budget eliminating half of a projected $120 million deficit, and developing a plan to eliminate the other half if hoped-for state and federal funds do not materialize.

By comparison, the deficit last year was $300 million and two years ago was $900 million. During those years, the county made draconian cuts while relying on bailouts from the state and federal governments, as well as shifts from the county’s retirement fund.

Expenditures have remained about the same, said Maureen Sicotte, the county’s public finance director. However, this year the county is less reliant on one-time revenues to pay them off. One example is the county’s health department where services have been contracted out a move designed to save millions of dollars.

Analysts said they were encouraged by improvement in the county budget and even hint at an upgrade should reform progress further.

“The assignment of the highest short term rating reflects a proposed budget which is significantly less vulnerable than recent years’ budgets,” said Ken Kurtz of Moody’s Investors Service. “It reflects positive action by the county to improve its liquidity position, and the board’s demonstrated willingness to make significant program cuts to maintain fiscal stability.”

Over the last two years, the county has made significant cuts in health programs and the General Fund in order to maintain fiscal stability.

In addition, Kurtz said county officials showed a willingness to make tough choices after laying off 2,525 health employees in the 1995-96 budget year.

In addition, the final California budget is likely to provide the county with at least $61 million more than anticipated in the county budget, he said.

“There’s no question of improvement,” said Chris Irwin of Standard & Poor’s Corp. “The times seem to have ended when the county relied on one-time revenue sources and large budget assumptions.”

These positives helped the county sell $1.3 billion of Tax and Revenue Anticipation notes last Thursday. The notes yielded 3.85 percent on the market which is the same amount the county obtained during last year’s notes issuance.

However, one big difference is that the county did not need to purchase a letter of credit this year.

“This year our credit rating was high enough,” said county treasurer Larry Monteilh. “This shows there is a lot of confidence in L.A. County on Wall Street.”

But there are still problems that need to be solved, said Moody’s Kurtz.

Long-term concerns remain for the county’s overall fiscal structure, including unfunded mandates created by the state and federal governments, continuing reliance on pension fund savings, and potential budget pressure from deferred salary increases.

“Sure, there are problems that need to be taken care of and we’re taking those steps,” said Janssen. “I think, more than anything, we’re showing people that we have identified the outstanding issues many of which are being solved.”